Economy in U.S. Expands 2.7%, Less Than Forecast (Update2)
By Timothy R. Homan
June 25 (Bloomberg) -- The U.S. economy grew at a 2.7 percent annual rate in the first quarter, less than previously calculated, reflecting a smaller gain in consumer spending and a bigger trade gap.
The revised increase in gross domestic product was smaller than the median forecast of economists surveyed by Bloomberg News and compares with a 3 percent estimate issued last month, figures from the Commerce Department showed today in Washington. Corporate profits climbed more than previously projected.
The revised figures showed an economy that was more dependent on inventory restocking and less driven by demand from consumers and businesses before the European debt crisis intensified. Unemployment, combined with the turmoil in financial markets and a lack of inflation, are among reasons Federal Reserve policy makers this week reiterated a pledge to keep interest rates low.
“It’s a moderate kind of recovery,” said Jay Feldman, an economist at Credit Suisse in New York, who projected growth would be revised down. Consumer spending “is not growing as fast as in prior recoveries.”
Stock-index futures dropped immediately after the report, trimming earlier gains. The contract on the Standard & Poor’s 500 Index rose 0.1 percent to 1,071.8 at 8:48 a.m. in New York. Treasury securities were little changed.
Less Than Forecast
GDP was forecast to grow at a 3 percent annual pace, according to the median estimate of 79 economists surveyed. Projections ranged from gains of 2.4 percent to 3.6 percent. The world’s largest economy expanded at a 5.6 percent pace in the last three months of 2009.
Today’s GDP report is the third for the quarter. The advance estimate for second-quarter growth is due July 30, when the Commerce Department will also issue its annual revision to growth figures covering the past three years.
Consumer spending, which accounts for about 70 percent of the economy, rose at a 3 percent pace last quarter, compared with the 3.5 percent the government estimated last month and a 1.6 percent gain in the prior three months. The first-quarter increase was the biggest since 2007.
The revision reflected smaller increases in spending on services than previously thought.
Consumer Spending
A report last month showed purchases in April were unchanged from the previous month, snapping a streak of six consecutive increases. Consumer spending figures for May, due June 28, are forecast to show a 0.1 percent gain, according to a survey median.
Last quarter’s trade gap was revised to $373 billion from $368.3 billion as imports climbed more than previously estimated.
A bigger gain in inventories, now calculated at $41.2 billion rather than $33.9 billion, partly offset the slowdown in household spending and a bigger trade deficit. The new data indicate inventory restocking will contribute less to growth this quarter.
Corporate profits increased 8 percent in the first quarter after, the same as in the previous three months, today’s report showed. Earnings were up 34 percent from the same time last year, the biggest year-over-year gain since 1984. The gain is one reason some economists project business investment and employment will pick up.
Factory Rebound
Manufacturers in the U.S. are reaping the benefits of the global recovery. Caterpillar Inc., the world’s largest maker of construction equipment, will see revenue rise 25 percent this year on surging demand for equipment from the mining and energy industries in developing nations, Chief Executive Officer James Owens said this week.
“We’re coming back very strongly after the recession,” Owens told reporters after a conference in Lima. “We’ll see growth in oil, gas and coal because we need energy for these rapid-growth emerging countries that are driving the need for commodities.”
A report yesterday from the Commerce Department showed bookings for goods meant to last at least three years, excluding autos and aircraft, increased 0.9 percent in May, the third gain in the past four months.
The report also showed shipments of non-defense capital goods excluding aircraft, which are used in calculating GDP, increased 1.6 percent after no change in April.
Debt Crisis
Mounting concern over the sovereign-debt crisis in Europe has rattled global financial markets. The Standard & Poor’s 500 Index is down 8.2 percent from March 31 through yesterday, and the dollar index, which tracks the currency’s performance against six major currencies including the euro and yen, is up 5.8 percent.
The decline in stocks may damp household wealth, leading to smaller gains in consumer spending, while the advance in the dollar may slow American exports.
The economy lost 8.4 million jobs during the recession that began in December 2007, the biggest employment slump in the post- World War II era. From January through May, company payrolls grew by 495,000 workers.
A Labor Department report July 2 may show total payrolls fell in June as the decennial census neared completion, allowing the federal government to cut temporary jobs associated with the population count, economists said.
The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 0.7 percent annual pace, the lowest level since 1962, today’s report showed. The reading underscores the Fed’s pledge to keep interest rates near zero in coming months as the economy expands without stoking inflation.
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